Basic Financial Literacy Curriculum

This part of my curriculum is meant to establish any definitions people may not know that I will be discussing. In this section, I discussed the main types of investments I would focus on in my presentations: stocks, bonds, and mutual funds.

You can describe stocks as pie slices of a company. When you invest in a stock, you become a partial owner of a company by getting a small sliver of it, and that sliver is a stock. You can make money off of a stock by selling it when the value of a company, and thus its stock price, increases. If a company as a whole goes up in value, then the small slice of ownership you invested in goes up in value as well. You can explain this in terms of the pie again. If you buy a slice of cherry pie, but then the cherry pie you got the slice from becomes very expensive, people would be willing to pay you more for your cherry slice than what you spent on it. This is the basic idea of a stock. This, however, can also go the other direction if the company decreases in value because the pie slice would decrease in value as well. Stocks are good to invest in when you think a company will continue on an upwards trend, but it can be expensive to buy stocks from every company you are interested in.

You can describe bonds as a type of loan, except the investor is doing the loaning. When you invest in a bond, you give a company money that will get paid back to you with interest. Interest is when a certain percentage of the initial money is paid back to you in addition to the initial value itself. In a bond, that money is usually paid back in increments over time. It is important to explain that bonds are safer than stocks in the sense that the company will prioritize paying back bond owners if the company is going downhill because they are indebted to them, whereas stockholders are just partial owners.

You can describe mutual funds as a collection of different types of investments put together by a fund manager. Mutual funds often include stocks and bonds as well as other securities. It is important to discuss that there are various types of mutual funds. Some are meant to be conservative, meaning they are focused on not losing money. Others are more aggressive, so they are more focused on earning more money. A large benefit to mutual funds is that there is included diversification, meaning that your money is spread out so it is safer.

This part of my curriculum is meant to encourage saving money and the concept of "paying yourself first". To engage the audience, you can begin by asking them if they save money. This question would vary depending on the age range of the audience, for example piggy bank vs. bank account. You can then begin discussing the importance of saving for a variety of reasons.

It is important to highlight that in order to invest money and get the benefits of "keeping up with inflation" and "the power of compound interest" previously discussed, one must first have money to invest. This is done through saving money and avoiding debt. This is a good time to highlight the benefits of investing such as a comfortable and perhaps early retirement, fallback funding in cases of emergency, and money growing on its own with just time and compound interest.

A good strategy to suggest for saving is taking a fixed amount from every paycheck and putting it away either into savings or investing. That way, the extra money at the end of the paycheck is not tempting, instead, the money you can afford to save is already saved.

This part of my curriculum is meant to explain different types of retirement funds early investors can get involved in and some of their pros and cons. The main retirement funds for investors are 401Ks, 403Bs, and IRAs.

A good way to explain a 401K is by going back to the lesson on saving and the idea of taking a certain percentage out of your paycheck and putting it away before spending any other money. A 401K does exactly that for you. A 401K is an employer-sponsored retirement plan, meaning that if your company offers a 401K, then they will take out whatever amount you determine out of your paycheck and put it into retirement investing. Although there are maximum amounts of money you can put into a 401K, there are many benefits to them. First off, there are tax breaks. The money put into the 401K goes in before taxes and it is not taxed when it is put in. In addition, many companies offer a form of a match for a 401K. Some companies choose to match a certain percentage of the money you put away into the 401K, and others match a set percentage of your paycheck. So, the money you put into a 401K is not taxed until you take it out, and when you take it out you will most likely be retired and, thus, in a lower tax bracket, so the money you pull out will be taxed at a lower percentage.

A 403B is very similar to a 401K, except it is for non-profit organizations and government workers. A 403B has similar tax breaks and benefits to a 401K, the main difference is just the types of employees that can invest in them.

An IRA is different from a 401K and 403B because it is a self-funded retirement account. For an IRA, you are in charge of putting away a part of your paycheck. However, IRAs have similar tax breaks to the other retirement funds discussed, as the money put into them is not taxed until you take it out, which means that more money is able to sit in the retirement fund and compound.

Retirement funds have lots of tax benefits and can be incredibly good to get involved in, especially if there are company matches. They are a great way to put away savings and prepare for your future, so when you begin making money, take a look at an IRA for yourself and see if your employer offers a 401K.